Bankruptcy: Can I Keep My Horse?

The stock market is down, money and credit are tight, bills aren't getting paid, and creditors are calling--what's a person to do? Horse owners are not immune from the current economic crisis, and for some people bankruptcy might be the best, or only, option. But what happens to the horses if their owner declares bankruptcy?

Bankruptcy serves two purposes, giving creditors at least a portion of the amount they are owed and providing a fresh start for the debtor. Bankruptcy is not a free pass, however, because a bankruptcy can remain on a credit report for at least seven years, making new credit difficult to obtain. There are serious repercussions from a bankruptcy, and a knowledgeable attorney should be consulted for advice and assistance.

Bankruptcy proceedings come in several varieties:

A Chapter 7 bankruptcy amounts to a liquidation of the debtor's assets. There are some exemptions, established by state law in most jurisdictions, that allow the debtor to keep some, but not all, property. The non-exempt property is surrendered to a court-appointed trustee, who sells the assets and distributes the proceeds to creditors. Horses, which are considered the personal property of their owners in all states, generally will not have a special exemption.

In Kentucky's list of exemptions, for example, horses are not mentioned at all in the personal property category. Farmers receive a $3,000 exemption for tools, equipment, and livestock; business partnerships receive an exemption for business property. Horses might fall under one of those categories in some cases. The trustee may require valuable horses to be sold to help satisfy debts. (Pets also are the personal property of their owners, but trustees are far less likely to require their sale because of the small amount of money generated.)

A Chapter 13 bankruptcy allows debtors to keep both exempt and non-exempt property pursuant to a court-approved payment plan. There are specific requirements for approval, but if a Chapter 13 plan is accepted, an owner can keep his or her animals.

Finally, businesses, including horse operations, may be eligible for a Chapter 11 bankruptcy. In the news lately due to the woes of General Motors and other auto makers, Chapter 11 bankruptcy amounts to a financial and structural reorganization plan for an ailing business. Depending on the nature of the business, the sale of some horses might be required, while others are kept for the operation of the business.

All bankruptcies are very fact-specific, and whether a horse owner will retain possession of the animals will depend on the circumstances of the case.

Milt Toby, JD, also authored The Complete Equine Legal & Business Handbook, available through ExclusivelyEquine.com.

About the Author

Milt Toby is an author and attorney who has been writing about horses and legal issues affecting the equine industry for more than 40 years. Former Chair of the Kentucky Bar Association's Equine Law Section, Milt has written eight nonfiction books, including national award winners Dancer’s Image and Noor. He teaches Equine Commercial Law in the University of Louisville's Equine Industry Program.

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